A look at 7 large-cap funds

By Kaustubh Belapurkar |  25-06-20 | 
 
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About the Author
Kaustubh Belapurkar, Director of Manager Research, Morningstar Investment Adviser India.

A large-cap fund is a must for almost every portfolio. It provides a foundation upon which one can build, and stability too.

According to the market regulator guidelines, a large-cap fund has to invest a minimum of 80% of its stocks in top 100 companies, by way of market cap. This means, 20% of the portfolio is up to the discretion of the fund manager; be it large, mid or small caps.

Our analysts Himanshu Srivastava, Kavitha Krishnan and Nehal Meshram look at select large-cap funds. The time period is September 2019 to June 2020.

You can access the list of fund analyst views here.  

UTI Mastershare Unit Regular Plan

  • Star Rating: 4 stars
  • Analyst Rating: Bronze
  • Analyst: Nehal Meshram
  • Date of Analysis: June 2020
  • Fund Manager: Swati Kulkarni
  • Analyst note
  • Performance
  • Portfolio

The portfolio typically includes well-known names with established business models. Names such as HDFC Bank, ICICI Bank, Infosys, TCS and L&T in the portfolio typify Swati Kulkarni's investment style--benchmark heavyweights. A degree of benchmark-consciousness is apparent in the portfolio’s sector weights, too, which tend to be aligned with the index.

The fund maintains a diversified portfolio, and, with its buy-and-hold strategy, the portfolio turnover ratio is lower than peers’. Kulkarni avoids taking tactical calls but does not shy from exiting a stock as a corrective measure if it does not pan out according to her expectation. She continues to have an overweighting in financials mainly in banks having sound liability franchise and capital adequacy. She also sees growth opportunities in information technology, as businesses are expected to adapt to the digital strategies to remain resilient during pandemic. The fund’s exposure to pharma sector too has gone up mainly in companies where the focus is on domestic business dealing in chronic segment, players with export opportunities in complex generic and specialty pharma.

Axis Bluechip

  • Star Rating: 5 stars
  • Analyst Rating: Neutral
  • Analyst: Kavitha Krishnan
  • Date of Analysis: May 2020
  • Fund Manager: Shreyas Devalkar
  • Analyst note
  • Performance
  • Portfolio

Devalkar’s portfolio is a high-conviction one where he invests in stocks from blue-chip companies across sectors that he views positively. He looks at sectors from a top-down perspective and evaluates individual stocks from a bottom-up perspective.

The portfolio remains markedly different compared with its peers as well as its benchmark, owing to the quality of stocks that fit into their portfolio. Rather than investing in sector leaders, the manager evaluates companies based on their fundamentals, growth trajectory, corporate governance, financials, and so on. They place a lot of focus on corporate governance and this leads them away from some companies despite their (possibly) higher growth trajectory.

Franklin India Bluechip

  • Star Rating: 3 stars
  • Analyst Rating: Bronze
  • Analyst: Himanshu Srivastava
  • Date of Analysis: March 2020
  • Fund Manager: Roshi Jain
  • Analyst note
  • Performance
  • Portfolio

The fund is reinventing itself under a new lead manager and different investment approach.

Jain has been entrusted with the responsibility of getting the fund back on track by plying her trademark investment style, which the fund house believes would be an apt approach in the large-cap space. This entails investing in an unconstrained manner, taking high-conviction concentrated bets across stocks and sectors, and going against the grain if risk/reward is favourable. Though Jain is adept at running such an approach, its viability in the large-cap category needs to be evaluated.

ICICI Prudential Bluechip

  • Star Rating: 4 stars
  • Analyst Rating: Bronze
  • Analyst: Nehal Meshram
  • Date of Analysis: March 2020
  • Fund Manager: Anish Tawakley, Rajat Chandak
  • Analyst note
  • Performance
  • Portfolio

The managers have a quality bias when choosing stocks: They favour companies with robust business models, strong entry barriers, and the ability to scale up without eroding profit margins. However, they are not averse to investing in companies that do not fulfill all their qualitative criteria if the stock offers a trade-off against valuations. This way they follow a barbell strategy and either end up paying more for high-growth stocks; and at the same time focus more on attractive valuations.

The fund lacks a long-term record under the new managers, but given that the lead manager has a strong research background, we have a conviction in his potential to make the strategy work over a full market cycle.

Nippon India Large Cap

  • Star Rating: 2 stars
  • Analyst Rating: Silver (direct), Bronze (regular)
  • Analyst: Sailesh Raj Bhan
  • Date of Analysis: December 2019
  • Fund Manager: Himanshu Srivastava
  • Analyst note
  • Performance
  • Portfolio

As per the SEBI’s defined investment mandate for the large-cap category, the fund now maintains a minimum of 80% of assets in large-cap stocks. While traditionally the manager has avoided investing in small caps, the allocation to mid-cap stocks has hovered in the range of 10%-20%, in line with the defined mandate. As of November 2019, large caps accounted for almost 81% of the portfolio. Bhan is benchmark-aware, but he takes reasonable sector deviations if his top-down view suggests so.

SBI Bluechip

  • Star Rating: 3 stars
  • Analyst Rating: Bronze
  • Analyst: Kavitha Krishnan
  • Date of Analysis: October 2019
  • Fund Manager: Sohini Andani
  • Analyst note
  • Performance
  • Portfolio

The team tends to avoid momentum-based ideas and focuses on bottom-up stock-picking which overlooks short-term market aberrations. This could lead to some short-term underperformance.

We think their approach towards investing in companies with a high environmental, social, and governance (ESG) score is a positive measure towards maintaining a “clean” portfolio. The in-house model portfolio forms the basis for stock picks and consists of the analyst team’s best ideas. Valuations are looked at on an absolute basis relative to the stock’s 10-year history. While they avoid event-based investing (possibility of a merger/acquisition, for example), they tend to invest in IPOs.

Mirae Asset Large Cap

  • Star Rating: 4 stars
  • Analyst Rating: Silver
  • Analyst: Nehal Meshram
  • Date of Analysis: September 2019
  • Fund Manager: Gaurav Misra
  • Analyst Note
  • Performance
  • Portfolio

The investment philosophy of the fund is built on three core principles: quality businesses with stable earnings, strong management, and attractive valuation. The process includes both quantitative and qualitative stock screening with bottom-up stock-picking. The sector selection is done through top-down approach mainly based on growth prospects. Analysts then assess stocks at the industry and company levels and focus on key drivers such as returns on capital employed, returns on equity, and EBITDA margin. Within the framework, a lot of emphasis is on qualitative analysis like management quality and execution capabilities. These are quantified by evaluating the trailing 10-year track record, which helps in removing subjectivity. There is a further focus on valuation, which becomes a key driver behind entry and exit timing. Meeting with company management is vital here to gain company-specific and industry information.

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